With air travel crippled, costs climb for exporters

As Korean airlines slash flights in the wake of the global coronavirus spread, the burden is shifting to local exporters whose belly cargo shrank by 90 percent as of late March.

Belly cargo refers to using leftover space inside passenger planes to load freight, which in Korea’s case accounts for 40 to 50 percent of all air cargo. As of late March, Korea’s belly cargo capacity had dropped by 90 to 100 percent compared to the pre-outbreak average, according to the Kuwait-based logistics company Agility. Capacity for cargo planes also plummeted by 50 to 60 percent during the same period.

“Export companies are facing blows from hikes in cargo fees and damage from delayed flights,” said the Federation of Korean Industries (FKI), a business advocate group, in a report released Monday.

The rising fees for belly cargo are particularly problematic for domestic companies, the association explained. A large chunk of Korea’s best-selling export items, such as IT components, auto parts and chemicals, are high-value products often sent via passenger planes.

Citing Agility’s data, the FKI added that the situation for Korean exporters was even graver than for other countries like Vietnam, where air cargo capacity fell by a maximum 40 percent during the same period.

“According to our knowledge, the volume of backlog trapped in airports has also reached a serious level,” it added.

The report attributes part of the drastic drop in domestic air cargo capacity to the fact that Korea, along with China, was one of the earliest countries to experience a significant coronavirus outbreak and was therefore subjected to travel restrictions from foreign governments earlier than other countries.

As of Tuesday afternoon, 181 governments had closed down airports, banned Koreans from entering their countries or required visitors to be quarantined upon arrival, according to the Ministry of Foreign Affairs.

From the shippers’ point of view, the ultimate concern with low logistics capacity is the anticipated rise in air cargo fees.

In China, the average air freight fee from Shanghai to the United States jumped 117 percent on month to $6.59 per kilogram, according to TAC Index, a Hong Kong-based air freight index company. This was an all-time-high record since it started compiling that data in 2016.

“When problems occur in the global supply network, there’s a tendency to see a more immediate rise in demand for fast airborne transportation than on land or ships,” the organization said in its report. “At the current stage, it seems unlikely that freight fees will stop increasing - this will eventually lead to an increased burden for domestic export companies and weaken their competitiveness.”

The difficulty adds to local exporters’ struggles last year amid the continued trade war between the United States and China and a freeze in Korea’s trade relations with Japan. Trade volume in 2019 had slipped by 10.4 percent, the biggest drop since 2010.

The FKI stressed that more government intervention is the only way to keep airlines and a slate of relevant industries afloat, calling previous support measures insufficient given the situation’s gravity.

After the coronavirus outbreak, the government granted loans through a state-owned bank and delayed various payment fees for using airports. But that support was limited, the FKI argued, compared to other countries including the United States, Taiwan, Singapore and France, where carriers secured bailouts or big tax cuts.

“We welcome the prior decisions for financial support and plans to help companies keep their workforce, but it’s a fact that those measures are smaller than what was announced in other countries,” said Kim Bong-man, secretary general of the FKI’s International Management Institute. “Airlines are the backbone of trade, and they’re in desperate need of all-around support.”

BY SONG KYOUNG-SON [song.kyoungson@joongang.co.kr]